Oct Reserve Bank Contemplates Housing Bubble

a door marked “reserve bank” thirteen men sitting at a table one is saying “Professor Beancycle, must you chew bubble gum while the board is discussing the housing boom” while another man blows a bubble. In the background there is a chart titled “lending” that shows a rising graph

In Peter Nicholson’s cartoon “Oct Reserve Bank Contemplates Housing Bubble” the members of the Reserve Bank Board are seated at a long table with the Governor, or chairman, at the head of the table. There is a door marked Reserve Bank and a chart that shows lending is rising in the background. One man at the table is blowing a bubble with chewing gum, and the Governor asks him not to do so “when the board is discussing the housing boom,” (Nicholson). The humor in this cartoon comes from the author’s use of dramatic irony. The reader knows that the “boom” will lead to a bubble, and this bubble will eventually burst (Nicholson). The cartoon was published before the recession of 2008, but anyone reading the cartoon after the recession would know that the bursting of the housing bubble was a major cause of the worldwide economic downfall. Nicholson obviously knows this and points the readers attention to the fact that lending has always been, and will always be, a major factor in economic downturns. This cartoon also relies on the homophone “bubble,” referring to the housing bubble and the bubble gum (Nicholson). The Governor asks his colleague not to chew bubble gum because it will pop just like the housing market.

Nicholson’s cartoon was published in 2002 in The Australian, a long standing news source Down Under. It depicts worries held about a housing bubble that has, arguably, yet to burst. A ‘housing bubble’ is a period of time in the property market during whcih prices go through the roof. A housing bubble is fueled by an increase in demand and speculation. The Australian bubble was not spread evenly throughout the country. Rather, housing markets in Sydney and Melbourne saw a “double digit growth” while elsewhere home values were declining or stagnant (Spasik). This extreme price difference was caused by a shortage in the Sydney housing market (Spasik). To account for the demand “over 720,000 homes will be built across” Australia, at least half of which will be in either Sydney or Melbourne (Spasik).

The text of the cartoon refers to the property market as a boom rather than a bubble. Excessive optimism was what allowed the bubble to expand. Investors and buyers alike are swept up in the boom of the market, but they always seem to forget the bust. The speculation that prices will continue to rise causes the market to soar. In order to accommodate the demand “loose lending” is often used to entice buyers (Razzi). However, these low interest mortgage rates are one of the primary causes of a housing bubble (Holt).

In a similar fashion to John Knott’s cartoon “It Was a Fool’s Paradise,” published in the Dallas Morning News in January of 1933, Nicholson points the blame at lending, or credit. Just as it was in the 1930’s America it is not the average buyer’s fault for using this credit, but rather a trick that will wreck their economy. Knott depicted the allure of credit as enticing buyers to their doom. Similarly Nicholson makes an effort to include lending in his cartoon while he does not include the Australian public at all. By doing this he alleviates the buyers of any fault and places the blame on the lenders.

While it is clear that the Reserve Bank depicted in Nicholson’s cartoon is the Australian Reserve Bank, the US Federal Reserve plays a large role in Australia’s economy. This global connection caused the worldwide economy to fall into a recession in 2008. The value of the US dollar influences the value of currencies around the world, and should it lower it will “push the Aussie dollar higher,” (Russell). In order to combat the this the Reserve Bank of Australia (RBA) is “lowering interest rates…to keep the Aussie dollar low,” and it is this lowering of rates that has allowed for the housing bubble to expand (Russell). The low interest rates lead to the housing bubble in a couple of ways. They “encouraged the use of adjustable rate mortgages” to combat buyers’ inabilities to pay for their home on a fixed rate mortgage (Holt). These low rates also led to leveraging, or “investing with borrowed money” (Holt). Once again this is reflective of Knott’s cartoon criticizing the use of easy credit, and how lending can turn an economy on its head in a matter of years.

Whether in 1930’s America or twenty first century Australia lending has proven to be a serious problem in the economic longterm. In Australia during the early twenty first century it lead to an incredible increase in housing prices, almost double that of the US (Sheehan). In his cartoon Nicholson is critical of the Reserve Bank’s role in the housing market as well as the role of borrowed money.

Works Cited

Holt, Jeff. “A Summary of the Primary Causes of the Housing Bubble and the Resulting Credit Crisis: A Non-Technical Paper.” The Journal of Business Inquiry 8.1 (2009): 120-29. Web. 19 Nov. 2015.